The fact that rates are going up with no end in sight is a good excuse to call potential buyers and try to get them to start seriously looking.

With rates going up it is harder to buy a house as you have less buying power.  Additionally, the price of homes continues to increase.

HISTORICAL PERSPECTIVE

Mortgage rates have stayed so low for so long because of the FEDERAL RESERVE’S efforts and commitment to keep rates low.  The FED did this by buying bonds.

During this quantitative easing period, the FED was purchasing $60 billion in MBS (Mortgage Backed Securities) each month!  Now the FED has reversed its’ role and is selling $30 billion a month in bonds, which represents a $90 billion dollar difference.

The FED is now committed to recapturing all of the capital used for quantitative easing . . . the capital that they pumped into the market during the Great Recession.  In July the FED is planning on selling $70 billion in bonds a month, so the yield will continue to increase resulting in higher mortgage rates.

To put the numbers in perspective the Federal Funds Rate was 5.25% in August 2007.  Within 16 months the rate had dropped to zero. The rate is currently at 1.75% so there is a long way to go to get back close to 5.25%.

The Federal Funds Rate controls what the bank’s prime rate will be.

Here is the recent history of the Fed Funds Rate:

Dec 2008                           Zero

Jun 22, 2011                       .25

Dec 16 2015                       .50

Dec 16, 2016                       .75

Mar 15, 2017                      1.0

June 14, 2017                     1.25

Dec 13, 2017                       1.50

Mar 21, 2018                      1.75

 

*** There will most likely be two more increases in 2018.

We are currently in a period of economic growth and with growth you typically see inflation.

When you have inflation the FED will raise rates to increase the cost of money and hopefully slow down the inflation.

The people who benefit the most are the people with low interest rate mortgages as their cost of financing decreases with inflation.

Joe Taydus
Senior Loan Officer NMLS#309188

LMB100017955

joe.taydus@novahomeloans.com

Office: 720-279-5901

Fax: 720-468-4119